Income Inequality, Social Mobility, and the Decision to Drop Out of High School

73 Pages Posted: 11 Jun 2014

See all articles by Melissa S. Kearney

Melissa S. Kearney

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER)

Phillip B. Levine

Wellesley College; National Bureau of Economic Research (NBER)

Date Written: June 2014

Abstract

It is widely documented that places with higher levels of income inequality have lower rates of social mobility. But it is an open question as to whether this reflects a causal relationship. We propose that one channel by which higher rates of income inequality might lead to lower rates of upward mobility is through lower rates of human capital investment among low-income individuals. Specifically, we posit that greater levels of income inequality could lead low-income youth to perceive a lower return to investment in their own human capital. Such an effect would offset any potential “aspirational” effect coming from higher educational wage premiums. The data are consistent with this prediction: low-income youth are more likely to drop out of school if they live in a place with a greater gap between the bottom and middle of the income distribution. This finding is robust to a number of specification checks and tests for confounding factors. This analysis offers an explanation for how income inequality might lead to a perpetuation of economic disadvantage and has implications for the types of interventions and programs that would effectively promote upward mobility among low-SES youth.

Suggested Citation

Kearney, Melissa S. and Levine, Phillip B., Income Inequality, Social Mobility, and the Decision to Drop Out of High School (June 2014). NBER Working Paper No. w20195. Available at SSRN: https://ssrn.com/abstract=2448880

Melissa S. Kearney (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Phillip B. Levine

Wellesley College ( email )

106 Central Street
Wellesley, MA 02181
United States
781-283-2162 (Phone)
781-283-2177 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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